The FTC is suing over a move by Georgia to let Phoebe Putney Health System, an independent nonprofit company that has a 40-year lease on the public hospital in Albany-Dougherty County, Ga., acquire the only other hospital in the community, Palmyra Medical Center.

Phoebe Putney says the Georgia Hospital Authorities Law has decided to replace the pure free-market model for hospitals in the state with a "statutory mandate." The mandate calls for a hospital in the state "to provide services to all indigent in the community, and to price all services on a not-for-profit basis and with a statutory limitation on rate of return," Seth Waxman, a lawyer for Phoebe Putney, said today in oral arguments before the Supreme Court.

In the real world, the public hospital was "a natural monopoly" that grew to serve 10 times as many poor patients as the private hospital "which is very underused," Waxman said.

Traditionally, the Supreme Court has let some state entities avoid complying with antitrust laws if the state has a "clearly articulated" reason for the policy and "actively supervises" private entities making use of the state's freedom from antitrust constraints, according to the authors of a case summary posted by the American Bar Association.

The public hospital authority believed the best way to expand capacity was to see if the private hospital wanted to be acquired, Waxman said.

The FTC says Georgia hospital regulators have no exemption from federal antitrust scrutiny, and that the FTC can act to block the deal even if the case involves no anticompetitive conduct.

A group of states said in a "friend of the court" brief that their hospitals do have the authority to make deals but do not claim to have the authority to violate federal antitrust rules.

"If the court accepts Phoebe Putney’s claims and shields nonprofits from federal antitrust scrutiny, then most hospitals would be free to engage in anticompetitive conduct that would not be tolerated from for-profit firms, posing a threat to the success of our market-based health care system," the professors contend.

The professors cite research showing that, in conditions in the real world, nonprofit firms tend to have different interests than members of the community, and that nonprofit firmsare at least as likely to maximize prices as for-profit firms are.